Choosing a trading instrument: how to trade CFDs on precious metals
Since ancient times, people have exchanged gold and silver for goods and services. Times have changed, but values have remained the same. Today precious metals can be traded through terminals for online trading with CFDs. Where, how and how much you can earn on this - we will tell you in this article.
Benefits of trading precious metals
Metals have been the most popular trading instrument throughout history. In fact, before the invention of paper money, which was originally nothing more than IOUs, it was metals that was the general measure of a product value.
Trading in precious metals attracts everyone - from central banks to individual investors. The most frequent question is “what to invest money in to save it?” And the most frequent answer is “in gold”. A rare exchange-traded fund doesn't have "metal stocks" in its assets.
In any incomprehensible situation on the world stage, we see the same reaction - gold starts to grow. Being the most ancient satellite of human civilization, it is still a safe haven asset. Quotes of silver and other metals are growing following gold.
How can an individual investor without billions in his pocket make money on gold, silver, platinum, palladium...?
Metals trading features
Precious metals are the second most popular trading instrument after oil. High intraday volatility provides traders with tremendous earning opportunities. The easily predictable influence of fundamental factors is a benefit as well. In fact, the only negative point is the need for a big capital for trading. If you have $100-200 there is nothing to catch on the metal market. If you have accumulated $1000-2000 you can try trading with minimal volumes. $10,000-20,000 is enough for short-term deals with great potential benefits. And if you are lucky and your capital exceeds $100,000, then you can safely form an investment portfolio from metals.
Gold trading
Gold is undisputedly the most popular metal to trade. It is especially in demand during periods of economic fluctuations. Long-term investments in gold are a win-win option for preserving and increasing funds in a crisis period. You can invest money both in gold itself and in stocks of the gold mining or manufacturing industry. Due to its demand in the market, gold has a fairly high volatility. Gold purchasing most often turns into profit already at medium-term distances. You only need to make a little effort in the analysis.
You can get acquainted with gold trading with these tickers:
XAUUSD (Gold / US Dollar)
ХAUEUR (gold / Euro)
2020 have once again confirmed the postulates of Charles Henry Dow: "History repeats itself" and "The market discounts everything". Gold price rose from $1,600 per troy ounce to $2,000. As the global economy is recovering from its peak, it tends to cool down. Investors consider diversifying their portfolios with other assets. However, not leaving gold at all.
Traders who trade gold CFDs can use margin rates of 1% per contract and thus earn even on intraday movements. Remember about risk management rules, of course.
The most active traders in the gold markets are Arabs and Chinese. Therefore, we advise you to pay attention to the news of these particular regions. Every month they report on their gold and foreign exchange reserves.
Silver Trading
Silver trading (XAGUSD, XAGEUR) is not fundamentally different from gold trading. The same quotes, the same recommended starting amounts. However, there are some nuances. So, for example, Silver often strengthens just after gold. Мany traders who missed signals for gold, open deals in silver. Thus, increasing/decreasing its value. In addition, the price of gold changes literally every tick while silver "shoots" the price into new levels.
For long-term distributed risk trades silver suits perfectly well. Changes in quotes bring more dividends. Silver gave an increase of 100% comparing with 25% of gold, given the same risk levels. The difference is clear. Using the same margin rate on CFDs (1%) allows traders to earn 200 and 300% per annum, without going beyond their own risk management systems.
Palladium trading
The main sources of palladium mining are located in Russia, the USA, Canada and Africa. Therefore, the change in price will be closely related to the economies of the listed states. The value of the precious metal is supported by its demand. Palladium (XPDUSD) is actively used in the automotive industry, jewelry sector, dentistry, production of electronics.
The exchange instrument XPDUSD has a dynamic amplitude of fluctuations. In some market formations, it can be used for hedging purposes. Palladium CFDs are best used by investors who prefer high intensity trading.
So, in previous articles on choosing a trading instrument, we have already talked about the peculiarities of trading currency pairs, cryptocurrency and CFDs on stocks and indices. In the following articles in this series, we’ll talk about other popular instruments so that you can make your own decision and choose the suitable assets for your trading.
